interview Dolf van den Brink
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Even though most of the risky products were rated as an AAA investment, it eventually turned out that these investments were actually very risky. This is where many things headed into the wrong direction. These kinds of actions should be made impossible by prohibiting them and by handing out penalties to banks that violate the rules. Supply and demand should be restored by making money more expensive. This eventually results in smaller balances, less risk within the financial system and higher returns on stocks. It can be concluded that central banks need to reduce the possibilities to take excessive risks. The only possibility is to do this is on the asset side, not on the liability side like Basel III addresses. What role do hedge funds play in the current crisis?
The first thing to point out is that hedge funds are not the ones to blame. When looking at the animal kingdom, hedge funds fulfill the role of hyenas; they take care of the things that are not viable. They continually seek parties that do not create synergy and will eventually split them up. Italy for example, currently does not have a sustainable business case. It’s not the hedge fund that messed up Italy, but Italy itself is the one who is responsible for its current state. Hedge funds do not break up healthy businesses, because that would not make sense. Look at hyenas, why would they diminish strong buffaloes that bring along a lot of risk when there are enough weak, old and vulnerable buffaloes to deal with? Hedge funds diminish firms that can be seen as unhealthy and those that do not contribute to the system.
This attitude made it very hard to default, but changed dramatically over the last few years.
What is the difference between the mindset of traditional banking and investment banking that took the lead for the last couple of years?
There are two types of thinking, Anglo-Saxon and the Rijnland Principles. Investment bankers are the typical Anglo Saxon thinkers whereas the traditional bankers are proponents of the Rijnland Principles. However, even though these two types are a world of difference, they can work side by side. Investment banks should work as a side construction that complements the Rijnland Principles. Do you think bonuses contribute to the system and should they be prohibited in periods of downturn?
The entire bonus culture started when Johan Cruijff introduced the philosophy: ‘do not be a thief of your own wallet when you are talented’. By making this statement, not only did he reach the sports sector, but he also infected the art-, music- and banking sector. Bonuses will never disappear, but should at least be mitigated. Bonuses do not add any productivity to a business. To the contrary, people even become self-cen-
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tered, and fights about how to divide the profit are not an exemption. Each year, employees become more and more obsessed about the bonus they will receive at the end of the year. This brings along negative energy and only negatively influences a company. It will probably be impossible to get rid of this whole mindset, but Europe should at least mitigate bonuses by giving out bonuses up to a maximum of half of the yearly wages. The complex discussion on how to solve this matter has surely darkened the social cohesion within banks. Noted should be that 80% of the banking sector comprises retail bankers that do not earn bonuses. Because these employees also work in the banking sector, they will be stared at as if they are moneygrubbers. Banks should take a serious look at these important matters or else it might happen that regulation will do it for them. What is the current position of the Dutch banks?
In the Netherlands, it looks like the system cleanses itself by remediating investment banks. A good example is Royal Bank of Scotland that recently took over the majority of the investment branch of ABN-AMRO. Dutch banks